Measuring Alberta’s contribution to federal finances
A new study recently released by the Fraser Institute measures the economic and fiscal contributions that Alberta makes to Canada as a whole. It shows that the province contributes disproportionately to the country’s fiscal balance and economic prosperity.
Saying that Alberta is a net contributor to federal finances simply means that Albertans send more money to the federal government in the form of taxes and other forms of revenue than they get back in federal spending – in the form of transfer payments, federal services, and federal program spending in the province. There are reasons for this imbalance on both the revenue and expenditure side of the ledger. Let’s start with revenue.
Albertans send more money to the federal government on average due to higher than average income levels, meaning that they are more likely to reach higher federal income tax brackets. For this reason, federal tax revenue from the province amounted to $11,110 per Albertan compared to just $6,792 for every non-Albertan Canadian in 2015. This significant revenue gap has been a reality for a number of years, as demonstrated by the Figure 1. In every year represented, even surrounding the global recession of 2008, federal tax revenues collected from Albertans have, on average, significantly exceeded those collected from other Canadians.
Yet there is also another dimension to Alberta’s contribution to federal finances that needs to be taken into account. The province doesn’t just provide the federal government with large sums of tax revenue: it also requires relatively little of that money to be returned to the province through federal expenditures and transfer programs. After all, having higher average wages and a younger population means that Albertans receive less in federal program spending than residents of other provinces, and the province’s relative prosperity has meant that the provincial government hasn’t received any equalization payments at any point in the past half-century.
A look at transfer payments more broadly illustrates this point. The Government of Alberta does receive transfers from Ottawa like all other provinces. The largest of these are the Canada Health Transfer and the Canada Social Transfer, which are paid to all provinces on a per-capita basis. But in total, Alberta’s government receive nearly $600 less in federal transfers than other Canadians on a per person basis since the provincial government does not qualify for equalization payments.
To be clear: none of this is necessarily a problem. While there are legitimate debates over how best to structure the equalization program and other federal transfer programs, ultimately wealthier provinces are going to shoulder more of the burden. But it is important for Canadians from the rest of the country to understand how much they benefit from a prosperous Alberta.
In short, Alberta is a province that generates large amounts of revenue but requires a smaller amount of federal spending per-person than most other provinces. Together, these two factors make Alberta a big net contributor to the health of federal finances. This makes economic recovery in Alberta crucial not just for Albertans, but for Canada’s public finances.